[The BBQ Interview] Rick Sharga of Carrington Mortgage Holdings – “Why is REO Volume Down?”
Posted by Jonathan Miller -Wednesday, May 30, 2012, 3:24 PM
I was looking for guidance/insight on the issue of future REO volume because I had anticipated a faster pickup in REO volume once the state AG agreement was signed with the major servicers (ie being held back after robo signing scandal) but that is yet the case. One of the most knowledgeable people in the business and a good friend (as well as an expert in the field of the BBQ) is Rick Sharga, Executive Vice President of Carrington Mortgage Holdings so I traded emails with him, compiled it and received a great overview of the topic:
Miller: Most pundits are looking at all the price metrics saying things are improving and inventory is low. To me it feels like there is an essential component not being factored in and that is foreclosure shadow. Am I overly concerned about it? I thought we were looking at several years of heavy volume. In fact S&P says 48 months of heavy REO volume.
Miller: But why is volume down?
Second, we’re (finally) starting to see some sales of non-performing loans (NPLs) by the major lenders; we’ve purchased two portfolios worth between $150-250 million in the last few months. Those sales at the very least delay REO actions while the notes are being transferred. Then, in cases such as ours where our mortgage servicing unit starts contacting the delinquent borrowers, a lot of loans are modified and taken out of foreclosure. Those that can’t be modified are typically offered the option of a short sale. So foreclosure actions actually are reduced by NPL sales. Third, the long-awaited AG settlement has had a bit of an unintended consequence in this area. While we anticipated – and have seen – the return of foreclosure processing in some of the judicial states where the engines had seized up during the AG negotiations, we’ve also seen an unexpected drop in activity in the non-judicial states. Part of this is due to the terms of the settlement. The five largest servicers have agreed to write off about $20 billion in principal balance on their delinquent loans. A high percentage of these loans are in the Southwest, in non-judicial states like CA and NV. These states also had some of the largest price declines from peak to trough. The servicers have financial incentives to meet their $20 billion amount as quickly as possible (one servicer, for example, is believed to have a “dollar for dollar” incentive on anything it writes down this year). So, the quickest way to meet the write down requirement is to target delinquent loans in the Western non-judicial states. “Dual tracking” is now illegal. Therefore, it makes sense for the servicers to halt foreclosure actions on these properties and see if the borrowers qualify for the write downs. How big is this? BofA announced that it had already made offers to 200,000 borrowers. The huge drop off in REO activity in these states won’t be offset by increases in the judicial states; even though they’re starting to execute foreclosures again, it will take time to unclog the system in those states and get through the processes. Finally, some of this is localized (Nevada has some new laws that make it difficult to execute a foreclosure without the original mortgage note); and some of it is due to pending Federal programs (HAMP Tier 2 is scheduled to launch next month, which will require servicers to see which of their previously un-modified loans will qualify for the latest government program).
Miller: What about that shadow inventory we’ve all been hearing about, and the several million seriously delinquent loans not yet in foreclosure?
Miller: This is very helpful, thanks. Another important topic of the day is BBQing. Any sage advice for a novice?
[Three Cents Worth NY #192] Summer Listing Levels May Heat Fall
Posted by Jonathan Miller -Wednesday, May 30, 2012, 11:49 AM
 It’s time to share my Three Cents Worth (3CW) on Curbed NY, at the intersection of neighborhood and real estate in the capitol of the world. And I’m simply here to take measurements. Read yesterday’s 3CW post on @CurbedNY: After a nice extended holiday weekend that traditionally marks the summer housing market, combined with all the chatter/concern about low inventory, I thought I’d look at listing levels over the past several years. I compared the level of active listing inventory (red line) around the Memorial Day weekend (red column) and its trough just before Labor Day (green arrow).
Best Real Estate “For Sale” Sign Ever
Posted by Jonathan Miller -Wednesday, May 30, 2012, 11:26 AM
Getting to the point in Knoxville, TN. Sweet! “Making The Donuts” (A Housing Market Theory)
Posted by Jonathan Miller -Wednesday, May 30, 2012, 9:43 AM
Years ago, there was a Dunkin’ Donuts commercial with the catch phrase “ For the past few months I’ve talked a lot about housing markets with “a hole in the middle” in my speaking engagements. I’ve been surprised at the volume of in-person feedback on “Donuts” just from my Bloomberg TV appearance with Deirde Bolton a few weeks ago including a senior bank executive at a board meeting I was presenting, a WSJ editor and reporter and others. For lack of a better description, many housing markets, especially along the coastal US, are like a donut (NYC’s version is more of a bagel than a donut – thicker but not as sweet). Incidentally, I made donuts at the bakery in college so I’m obviously more than qualified to use this weak analogy. The “hole in the middle” pattern is something I’ve been observing in the various housing markets I follow or dabble in – i.e. Manhattan, Westchester, Hamptons, Brooklyn, Miami, SF, DC, to name a few. I’m not defining it by a specific price but the middle is more like the segment just above the middle in these markets. It’s placement is specific to the price structure of each market. It goes like this:
The “donut housing economy” is holding back consumers from trading up in an orderly fashion. i.e. from the low to middle of the market, from middle to high (or the reverse). By describing the middle as a “hole” I don’t see the middle as a stark barren wasteland (i.e. w/o sprinkles). I’m simply observing that it’s weaker relative to the top and bottom…for now. [Three Cents Worth NY #191] Manhattan Rentals Are Quicker Picker Upper
Posted by Jonathan Miller -Tuesday, May 29, 2012, 12:12 PM
It’s time to share my Three Cents Worth (3CW) on Curbed NY, at the intersection of neighborhood and real estate in the capitol of the world. And I’m simply here to take measurements. I was in such a hurry for Memorial Day weekend to come, I neglected to post this last week. Look for a new 3CW post later today. Read last week’s 3CW post on Curbed New York: I’m probably dating myself with the title reference to an old Bounty Paper Towel commercial tag line, but who cares, this is Curbed and they’ll absorb all spills. Since everyone seems to be talking about the strength of the rental market, I thought I’d take a look at the absorption rates of the sales and rental markets over the past 5 years. I could go back more than 10-years with the sales market but my rental listing data is currently only compiled back to 2007.
[NAR] Existing Home Sales Continue to Edge Higher +10% Y-O-Y
Posted by Jonathan Miller -Tuesday, May 22, 2012, 2:21 PM
NAR’s Existing Home Sales numbers continue to edge higher. In this chart I annualize the non-seasonally adjusted and seasonally adjusted results. Think there isn’t seasonality in housing sales? Here’s a good summary by Peter Coy at Bloomberg Businessweek. No doubt a big reason was the improvement in affordability. The interest rate on a 30-year fixed-rate mortgage has continued falling since the period covered by the NAR report, portending better times ahead. Freddie Mac (FMCC), the mortgage-buying giant, says the rate was 3.79 percent in the week ended May 17, the lowest since it began keeping records in 1971. The Realtors’s index of affordability hit a record high in the January-March quarter. It factors in sales prices of existing homes, mortgage rates, and household income, which is slowly strengthening as the labor market improves. And here’s a trend on inventory and absorption (months supply). Inventory continues to slide (not seasonally adjusted).
[Vortex] Did We Get There? The Promise of Licensing Appraisers
Posted by Jonathan Miller -Tuesday, May 22, 2012, 11:32 AM
Every so often, a Matrix reader submits something they feel very strongly about it and bravely enter the Vortex where I post it. Guest Columnist: Cecil Simon Cecil has been a New York general state certified appraiser since 1992. He takes a look at the intersection of professional education and licensing. He’s weighed in here before. Like me, Cecil was an appraiser before the licensing law in 1989 and in fact wrote Congress about this matter as early as 1986. Admittedly this is super appraiser wonkiness, but it’s worth the read. -Jonathan Miller
May 12, 2012 Did we get there? the promise of Licensing Appraisers. How technically prepared are Certified General Appraisers? A recent editorial by Henry H. Harrison in his Real Estate Valuation Magazine, suggested the answer is not very well. In fact, Mr. Harrison even challenged readers to provide evidence that Certified General Appraisers did not make at least 80% of their living writing residential work. I believe he is correct on the preparation issue, and incorrect on what Certified General Appraisers do in the industry. Most Certified General Appraisers have now become the workhorses for fee shops run by designated appraisers, working as independent contractors at low rates and without benefits. This was by design, and the education and experience requirements set by the Appraisal Qualifications Board in the early 1990s, later amended in 2008, bears me out. It is now generally accepted that the requirements for General Certification set in 1991 were deplorable, although Harrison and other in his group did not think so when I first wrote to him in 1993. The 2008 fix with the addition of a course in Highest and Best Use and Market Analysis, and one in Report Writing was a plus, but the remaining content was just a split of two former lower level courses into some 120-140 hours. The final product was three hundred classroom hours, more than were required for the MAI in 1990, yet these were junior courses. FIRREA had a specific mandate. That mandate required that the education and experience required for General Certification be such, that a person with those qualifications would be able to appraise any property without regard to value in a Federal related transaction. That is a high standard, which was well known to the Chairman and members of the Board from 1991 to 2004, yet they did otherwise. The reasons often given in support of the lower standards were the use of the term minimal education required, that States could add to the basic core, and that Certification requirements were intended as a beginning. But the mandate certainly does not imply that. Basic appraisal education requires only six courses, seven if you add the new Quantitative Analysis course, which is a plus. The seven courses are Appraisal Principles and Procedures, Highest and Best Use and Market Analysis, Land Valuation and the Cost Approach, Direct Sales Comparison Approach, Income Approach, Quantitative Analysis, and Case Study and Report Writing. These names can be applied to Residential and General [Vortex] Did we get there? the promise of Licensing Appraisers. Certification courses with different content, and all that is currently listed by the Appraisal Institute as Level 1 and 2 and required for their MAI designation can be covered in those seven courses. Hours can be assigned based on the content to be covered. The seven basic courses plus four years of experience, and the State Exam, is more than adequate to lay the groundwork for Certification as well as any designation. It should be noted that the six courses used prior to 1990 for the MAI, and the four used for the SREA (101, 102, 201, 202), were all taught in less than three hundred hours. These courses produced some of the best educators and practitioners currently working in the industry, including Mr. Harrison. Even Universities that grant Undergraduate and Graduate Degrees in Real Estate offer only one or two courses in Valuation. I took the trouble to review the education requirements for all of the original members of the Foundation that deal specifically with Real Property interest. The Appraisal Institute of Canada arguably has the best program, and the Appraisal Institute is the only one with Advanced Courses. Some startling facts also come to mind. The education requirements for the MAI designation have increased from 267 hours in 1990 to 482 in 2008, an increase of 215 hours, all without any change in the theory and methodology of valuing real property. The only industry change during that period was the use of software that makes database searches and data analysis easier. In fact, one group, The American Society of Appraisers could not even remember when they last hosted a basic course. I believe that The Appraisal Institute is the best professional association representing appraisers and the leader in the industry, but its continued creation of advanced courses in order to create the illusion that its members and candidates are better prepared than Certified Appraisers is a farce. The same seven courses could easily serve as the core education requirements for candidates as well as General Certification. Additional requirements for designations can be added. The MAI designation is a highly recognized brand, and could be granted based on work experience and peer review. Downgrading the education requirements for Certification is a dumb idea, and it is clear that The Appraisal Subcommittee fell down on its mandate to monitor and review the practices and activities of the Foundation. There are a few good textbooks out there on Appraising Real Property, and I place The Appraisal of Real Estate, published by the Appraisal Institute at the top of that heap. Now I would hope that any State that puts its imprimatur on the qualifications of any individual to call that person a Certified General Appraiser, expects that they have covered the content of that text from cover to cover. That was the intent of FIRREA. But it appears that by separating the content into General and Advanced sections, both the Appraisal Institute and the Appraisal Qualifications Board that it has controlled since 1989 seems not to think so. This difference in education is the centerpiece of Harrison’s thesis. The Qualifications Board should simply set the education requirement as successful completion of a course in the seven areas and forget hours, and if a rigorous State exam is made part of the process, then The Appraisal Institute will be sure to include much of what it now calls advanced content in those seven courses. On the issue of college education, professional associations may find this a plus, and hopefully the appraiser has written enough college papers to be able to write properly, but degrees in most disciplines will not make you a better market analyst. The answer to my original question is yes and no. We now have a mechanism to punish bad apples, although better enforcement is needed, but the standards for education, experience and testing did not. C M. Simon. A Twitter Shout-out from Valuation Review on their 10th Anniversary
Posted by Jonathan Miller -Monday, May 21, 2012, 3:30 PM
Here’s the Editor’s page in a recent copy of Valuation Review, an essential publication for real estate appraisers by October Research. I’ve been subscribing since nearly the beginning when it was called something else. Always relevant good reading for an industry besieged by bad information. And more importantly, take notice of my twitter shout-out . Fun!
[Brookings] How We’re Doing Index – May 2012
Posted by Jonathan Miller -Monday, May 21, 2012, 2:30 PM
Sort of like the sparklines feature in Excel – It provides a quick snapshot of where we are economically right now. [Vortex] ‘Sustainability’ of Property Values [Part I of Trilogy]
Posted by Jonathan Miller -Monday, May 21, 2012, 12:08 PM
A good friend of mine, Mark Stockton of Valuations Unlimited, LLC, has developed a powerful research tool to aid in valuation. Mark is a sharp unassuming guy who has sold technology to Wall Street before. Here is a simple overview. It addresses the significant elements of the technology. It’s not an AVM and better yet…it actually works! At least it worked when I tested it on my house in CT (a 200 year old 3 story Salt Box) and on a number of my friends’ and relatives’ properties in various parts of the US. His technology develops the replacement cost, market analysis, land residual analysis, assessment analysis, sale price index and rental analysis and allows the user to weight the applicability of each approach. He’s got several very interested parties at this point. As Mark has told me: “We certainly need to make decision makers aware that there is at least one solution available that can help them make better decisions and monitor their investments over time.” He’s entered the vortex on Matrix (he wrote a guest post). It’s about a different kind of “sustainability”. A good read. Sustainability of Property Values There has been a lot of discussion in recent months about the need to reengineer the appraisal process. There is no denying the fact that the process as it currently exists is antiquated and inadequate. Methodology is purely subjective; there is a lack of adequate analytics. These deficiencies can be corrected. Comprehensive analytics are available to those who would demand them. Much of the subjectivity can be replaced by objective processes that will support reasonable value conclusions. However, fixing the means by which value conclusions are developed addresses only part of the problem. Those conclusions must be examined for sustainability in order to be used to make prudent lending and investing decisions. A friend recently lost her home. She purchased it new in May of 2002 for $234,500, and at the time the price was reasonable when compared to the other 1,000+ newly constructed homes in the immediate area. I have not seen the appraisal that was done at purchase, but I imagine the value conclusion was reasonable in light of the fact that there were so many similar homes in the subdivision that were selling at the same time. There is little doubt that the appraised value was extremely close to the contract price of $234,500. I cannot deny that the appraised value of the property in May of 2002 was – and should have been – approximately $234,500. What I can say with authority is that the appraised value at the time of purchase was unsustainable. There are meaningful relationships in real estate markets just as there are in other markets (stocks, commodities, etc.) that must be monitored to support prudent lending and investing decisions. For example, we know there is a relationship between rents and sale prices that should be considered. From a lender’s perspective, if a buyer should have difficulty paying the mortgage, it would be comforting to know the home would bring in enough income in the form of rents to pay its own way. There is another important relationship that has been long overlooked, and that helps us understand the sustainability of property values. It is the relationship between the market value of a home and its depreciated replacement cost (RCNLD). There is an old (often forgotten) adage that no prudent buyer would pay substantially more for a home than the cost to rebuild it on a similar site. This concept was once recognized by the appraisal industry and acknowledged in the cost approach to value. There was a time, not long ago, when appraisers had to provide commentary to support any cost approach in which the site value represented an excessive portion of the overall value. It was recognized at the time that a large disparity between the value of the improvements (depreciated replacement value) and the value conclusion (the market estimate derived from the cost approach) could be indicative of an unsustainable market value. History has, in fact, shown us that when the gap between RCNLD and sale price in traditional housing markets grows beyond 120%, market values are approaching unsustainable levels. When that ratio reaches 130%, we can be certain that a correction in home prices is imminent. When my friend purchased her house in 2002, the ratio between RCNLD and home prices (Market Experience Ratio©, or MER©) in the immediate area was 135%. Her home and the neighboring homes were being built and sold at the high point of what would become known as the housing bubble. For those of us who watch relationships closely and have developed a means of monitoring them on both a broad scale and granular basis, this was obvious. Each time this occurs, as it has on several occasions in the past 30 years, market prices respond by declining to a level that more closely approximates depreciated replacement cost. The current MER for homes in the area of my friend’s house is 106%. The ratio is still declining slowly, but prices have reached reasonably sustainable levels.
Here’s the bad news. My friend was able to secure a 100% loan in 2002, with payments structured to start off small and increase over time as her income and her equity grew. Ecstatic at the prospect of being able to own a brand new home with no down payment, she was unaware of danger that lay ahead. So too was her lender, apparently. She can be forgiven; she was not, and is not, what is sometimes referred to as a “sophisticated investor”. How can an average consumer be expected to understand market dynamics and complex financial dealings? Isn’t that why they rely on professionals? The lender, however, should have known better. What happened to real estate markets nationwide a few years thereafter was not an anomaly. It has happened often in the past, and it will happen again in the future. Every time investment dollars become more abundant and credit restrictions relax, you can bet this same scenario will play out in real estate markets across the country. About a year ago, my friend lost her job. She was forced to confront the fact that she was unemployed and would have to compete with tens of thousands of other unemployed individuals for a position that would probably pay less than her old job – if she could find employment at all. The value of her home had declined by more than 12% in the decade since she had made her purchase. Instead of building equity, she was “under-water” on her mortgage. Recently, her home was foreclosed and she found herself in a position that is all too common today. While not homeless, she is facing bankruptcy and the attendant emotional and financial difficulties that are inevitable. If the proper tools and analytics had been available to the lender in 2002, chances are things would have turned out better for all parties. It is reasonable to assume that the lender, recognizing the instability in the housing market, would have modified its lending practices and terms offered to borrowers would have become more restrictive. In fact, there is a high probability that the instability would have never reached such extremes; lenders might have acted promptly and prudently to insure that sustainability was protected, and their subsequent losses might have been significantly reduced. My friend might not have qualified for a loan at all, and would have perhaps been forced to continue renting until she accumulated a suitable down payment. If and when she was ready to make a purchase, she might have had to settle for a “starter home” rather than opting to buy her dream house. These, by the way, are not bad things. Until recently, this was regarded as the appropriate path to home ownership in America. So here’s the message. Prudent lending and investing must be based on more than just accurate appraised values. Values must be scrutinized for their sustainability as well. As my friend and her lender discovered, an accurate value for a home yesterday might vary substantially from an accurate value for the same home today. That does not make either value conclusion less accurate, but it does reveal that markets fluctuate and values must be viewed within the context of current market trends and long term sustainability. If your valuation professional cannot provide you with both a reasonably accurate value conclusion, supported by industry standard analytics, and a reasonable measure of sustainability, you need a solution that does.
Luxury Real Estate as the New Global CurrencyPosted by Jonathan Miller- Sunday, November 18, 2012, 5:46 PM 2 Comments
Over the summer Camilla Papale, Douglas Elliman’s CMO asked me if I would present something about the state of luxury real estate for their Elliman Magazine (and iPad app!). The finished result contained 3 parts:
Here’s the full piece in Elliman Magazine . I’ve inserted a portion of the presentation below in 2 parts: LUXURY REAL ESTATE AS THE WORLD’S NEW CURRENCY Since the beginning of the global credit crunch in 2008, luxury real estate has morphed into a new world currency that provides investors with both a tangible asset and a cachet that cannot be found within the financial markets. It’s as if these emboldened investors zoomed out of their local Google Earth view to discover the wider global perspective on luxury real estate. HOW DID WE GET HERE? The US dollar has weakened in the years following the collapse of Lehman Brothers in the onset of the global credit crisis. The S&P downgrade of US debt in August 2011 from its benchmark AAA rating brought a flood of investors into US financial securities. That meant that our currency allowed us to buy less abroad, and the strength of other currencies provided international buyers with large discounts when purchasing property in US dollars. But it went further than that. THE RISE OF LUXURY REAL ESTATE AS A “SAFE HAVEN.” The volatility of global financial markets and the resulting political fallout shook investor confidence, which in turn spurred a rise in foreign buyers seeking a safe haven to protect their assets. A wave of international buyers from Europe, South America, and Asia entered the US housing market, helping set record prices and revive luxury markets including New York, The Hamptons, and Miami. SUPPLY-DRIVEN DEMAND. The luxury real estate market has become defined by the supply of available properties. While demand has remained constant and elevated, inventory has become a critical variable, particularly at the very top of the market, where surging international demand for one-of-a-kind properties has surpassed the limited supply. The resultant record-breaking sales of “trophy” properties have enticed more owners of luxury homes to make them available for sale. THE RISE OF THE “TROPHY PROPERTY.” The trophy property has become a new market category that does not follow the rules and dynamics of the overall marketplace. One stratospheric price record is being set after another, and it is not only the list prices that are defining these record sales; the rarity of location, expanse of the views, quality of amenities, and the sheer size of these unique homes have all played an important part in attracting the interest of foreign buyers. WHERE DO WE GO FROM HERE? Driven by the global credit crunch and political instability, the two factors that are expected to remain unchanged for the next several years, the US luxury housing market is expected to remain a “safe haven” for foreign investors for quite some time. A CONVERSATION ABOUT THE COMMERCE OF GLOBAL LUXURY REAL ESTATE I sat down with Dottie Herman and our friends across the pond, Patrick Dring, Head of International Residential, and Liam Bailey, Head of Residential Research at Knight Frank, to chat about the state of real estate in the prime markets across the globe and the rise of a foreign investment phenomenon. JONATHAN MILLER: Douglas Elliman has a broad coverage area that includes some of the most affluent housing markets in the US. Are you seeing any short-term issues that may influence luxury investor decisions over the coming year? DOTTIE HERMAN: At the end of this year, we may see a repeat of the consumer behavior we saw at the end of 2010 when US capital gains tax rates were expected to rise. Ultimately, the rates did not increase, but many consumers in the luxury market took preventative action before the potential tax increase and raced to close their sales by the end of 2010. Despite the ups and downs in the quarters that followed, the luxury housing market was not adversely impacted in the long-term. JM: Paddy, according to Knight Frank’s Global Briefing blog, housing prices in central London are up sharply, but the pace of growth appears to be slowing, perhaps because of the new stamp duty (a tax on properties priced at £2M–the equivalent of $3.15M–or more). What does this mean for the luxury market? PADDY DRING: In short, the £5M ($7.85M) market is up year-on-year. The new stamp duty on property sales above £2M seems to be having an impact only on the band just above the new £2M threshold. Foreign demand remains high and, notably, we have sold to over 62 different nationalities within the last 12 months. They are less affected by the changes in stamp duty, since the rates in London are still in line with many other European countries. JM: Dottie, your firm has sold a large number of luxury properties this year, despite a lukewarm economy and tight credit conditions. Record sales and listing prices are becoming nearly commonplace and a significant portion of this demand for luxury real estate is coming from abroad. Do you see this developing into a long-term trend? DH: It’s certainly been a year of records and I do think we are embarking on a period where luxury real estate has the potential to outperform the rest of the housing market. Several of the markets that we cover, Manhattan and Miami in particular, have been firmly established as highly sought-after international destinations. As much as we fret about how slowly our economy is recovering, the US has proven itself as a “safe haven” for many international investors who are concerned about the turmoil of the world economy and political stability. Luxury investors from much of Europe, Russia, Asia and South America have been buying here at the highest pace we have seen since the credit crunch began. JM: Liam, the US is seeing a higher-than-normal influx of real estate demand from foreign investors who seem to be focusing on the upper end of the housing market. These investors are well represented from Europe, Asia and South America. Are you seeing the same phenomenon when it comes to luxury properties in the UK? What are the primary regions where this demand is coming from? LIAM BAILEY: The focus of demand continues on London and its easily accessible suburbs. London is facing even higher global demand than New York, with the top end strongly led by Russia, Europe, Canada, and the Middle East, and demand in the new development investment market very much led by Asia. JM: In the US, access to financing is a key challenge to domestic purchasers, including luxury investors. What are some of the key challenges facing your clients who are looking to purchase real estate outside of their own countries? PD & LB: Financing remains a consideration for many, although mortgages are more available in many of the markets than people are led to believe. Of course, the property needs to be quality and in a core location and have a more conservative loan-to-value ratio, however, many of our clients purchase in cash, so they are more affected by market sentiment and, of course, liquidity if they need to sell unexpectedly in the future. Factors affecting market sentiment include the usual considerations, such as exchange rate, a stable political base, as well as a sound legal system that guarantees clarity of title and tax considerations. The latter of course is affecting not only the cost of acquisition (stamp duty), but also, in some countries, the cost of holding (wealth tax) and ultimately selling (capital gains tax). Access, infrastructure, and climate (if lifestyle-driven) all remain key, as do low crime rates as people become more aware of their privacy and personal safety. JM: Since the beginning of the credit crunch, you’ve constantly stressed to your clients that the terms of a sale are just as important as the price of a sale, given the challenges of obtaining financing. How do international buyers fi t into this new world defined by tough lending standards? DH: Despite mortgage lending in the US remaining tight, luxury markets in the areas we cover have improved quickly. I can only imagine how much stronger the US housing market would be if we saw credit ease to historically normal levels. International buyers tend to pay cash or obtain financing from their native countries, which has given them an advantage over many domestic purchasers. Combine the ability to pay in cash with both the weakness of the US dollar against many of their native currencies and a volatile global economy, and you can begin to understand why we are seeing a strong presence of international buyers in our markets. Like our friends at Knight Frank, these luxury investors are interested in our proven core markets that already have a large concentration of luxury properties. Overall, we continue to be excited about our market’s expanding presence in the global luxury housing market—there are many opportunities out there for this new international investor to explore. Luxury Real Estate as the World’s New Currency [Miller Samuel (pdf)] [666 Park Avenue] Appraising Fictitious TV Celebrity ApartmentsPosted by Jonathan Miller- Friday, September 28, 2012, 9:46 PM No Comments
In lieu of the new TV show 666 Park Avenue (the devil passed the board interview apparently), the Commercial Observer asked me for some thoughts on the value of some fictitious apartments and properties in some notable TV shows using what limited information was available back in the day and some strained logic (with a slew of hypotheticals and disclaimers) all in the name of fun. Although the graphic incorrectly uses the building square footage total for no. 3, the graphics people at CO did an absolutely brilliant job with this – love it. Here’s a cool web site I came across with theoretical floor plans for popular tv shows. Lifestyles of the Rich and Fictitious [Commercial Observer] Change is Constant: 100 Years of New York Real EstatePosted by Jonathan J. Miller- Tuesday, February 7, 2012, 11:28 AM 5 Comments
Last fall Prudential Douglas Elliman turned 100 years old and they asked me to write an article for their Elliman magazine. If you’ve been living in a cave, I’ve been writing their housing market report series since 1994. What started as a simple project morphed into a fun, albeit gigantic, research project. I learned a lot about the evolution of the Manhattan housing market, largely through the The article I wrote for Douglas Elliman was beautifully presented by their marketing department and prominently inserted in their Elliman magazine (and iPad app!). Diane Cardwell of the New York Times in her “The Appraisal” (an incredible column name BTW) penned a great piece: In an Earlier Time of Boom and Bust, Rentals Also Gained Favor that originated from my article and zeroed in on the 1920s and 1930s to draw a comparison to the current market. I have the feeling my project is going to morph into something bigger – it’s just too interesting (to me). A few things I learned about the Manhattan market over this period:
• Change Is The Constant In A Century of New York City Real Estate – pdf [Miller Samuel] Sidebar/Appendix Here’s a separate piece I also wrote during my DE research project (to clear my head after pouring through all the historical articles) which incorporates my “theory of negative milestones.” While researching the last 100 years of New York City residential real estate I came to appreciate the one constant in the ebb and flow of housing. It is a market that has continually adapted to significant economic, political and social change. History showed us that the New York City housing market reacts to this change as an opportunity to reinvent itself resulting in more growth. Despite significant challenges, the New York has thrived during its transition from an industrial to service economy as a core driver of housing demand. Over the past 100 years, the city has been held together by a diverse economy linked with other economic capitals across the globe. Yet like the economy of today and the early part of the 20th century had a commonality in financial services. It remains an important sector, driving the creation of wealth and influencing the demand for housing. “With the continued prosperity of the country as a whole and the tremendous activity in Wall Street, there is no reason why the new year should not be an extremely prosperous one in the real estate field.” – 1927 Douglas L. Elliman & Co., Inc. report (NYT) Because the series of milestones is measured in decades and we live in the moment, it is hard to appreciate the many changes that define the housing market we currently enjoy. The housing stock moved from dependence on single unit dwellings to apartment rentals to co-operatives to condominiums. It has ranged from overcrowded tenements to newly developed luxury highrises. The addition of new housing or re-purposing of existing structures has resulted in a wide array of residential property that forms the texture of the New York City real estate market. An irony of this evolving housing legacy comes from the sense of permanence that resonates from simply gazing at the physical asset both as a shelter and as a home. Leaf through “before and after” photo books of New York and the revolving landscape is readily apparent. Historic milestones mark the moment of change in the housing market, making conditions that existed before largely irrelevant to the “new” market, prompting new patterns and incentives. Participants seek out understanding and then re-enter the market. Here’s a Manhattan timeline that includes a rough survey of luxury pricing. 1910’s The surge in demand for housing, World War I 1920’s The “Roaring Twenties” 1930’s The 1929 Stock Market Crash and “The Great Depression” 1940’s World War II 1950’s The post-World War II Housing Boom 1960’s First condo building, World’s Fair, Building Boom 1970’s World Trade Center Completed, Near Bankruptcy, Finishes Stronger 1980’s Co-op Conversion Boom, “Black Monday” Stock Market Crash 1990’s From Recession to Lofts and the “Silicon Alley” Dot-Com Boom 2000’s 9/11 to Housing Boom to Lehman 2010’s Quick Rebound, Tax Credit and Housing Seasons Of course there will always be more milestones for New York City to grapple with and that’s the constant above the fray.
[Three Cents Worth NY #235] Manhattan Regional Sales in 3DPosted by Jonathan Miller- Tuesday, June 18, 2013, 5:47 PM 1 CommentIt’s time to share my Three Cents Worth (3CW) on Curbed NY, at the intersection of neighborhood and real estate in the capital of the world…and I’m here to take measurements. Check out this week’s 3CW column on @CurbedNY: As much as I dislike 3D charts and don’t want Curbed readers to wear 3D glasses smeared with greasy popcorn butter, I thought I’d use them on a simple topic. For each quarterly market report release, I group Manhattan into four distinct geographic regions and measure the market share of their sales during each quarter. This chart shows the market share of each region based on sales activity by region…
My latest Three Cents Worth column on Curbed: Manhattan Regional Sales in 3D [Curbed] [Three Cents Worth NY #234] Manhattan’s Stormy Listing TrendPosted by Jonathan Miller- Wednesday, June 12, 2013, 3:50 PM No CommentsIt’s time to share my Three Cents Worth (3CW) on Curbed NY, at the intersection of neighborhood and real estate in the capital of the world…and I’m here to take measurements. Check out this week’s 3CW column on @CurbedNY: This week I took a look at Manhattan’s year-over-year listing trends by the number of bedrooms on a weekly basis. I threw in a few milestones using ridiculous artwork (hey, this is Curbed!) to help provide some context. To state the obvious, listing inventory is very volatile and there are periods of time where certain segments stray from the pack. It’s clear that the top end of the market (four bedrooms, pink line) strayed the most over the past few years as many owners tried to piggyback onto a handful of trophy sales…
My latest Three Cents Worth column on Curbed: Manhattan’s Stormy Listing Trend [Curbed] [Manhattan Absorption] May 2013 – Fast Pace Below $2M Remains, Slowing On TopPosted by Jonathan Miller- Thursday, June 6, 2013, 7:00 AM No Comments
Absorption defined for the purposes of this chart is: Number of months to sell all listing inventory at the annual pace of sales activity. (The definition of absorption in my market report series reflects the quarterly pace – nearly the same) I started this analysis in August 2009 so I am able to show side-by side year-over-year comparisons. The blue line showing the 10-year quarterly average travels up and down because of the change in scale caused by some of the significant volatility seen at the upper end of the market. The pink line represents the overall average rate of the most recently completed month. Side by side Manhattan regional comparison:  
[click images to expand] Significant acceleration in the pace of the market below $2M, not much change from $3M to $10M and continued slow down north of $10M Manhattan Market Absorption Charts 2013 [Miller Samuel] Manhattan Inventory Trend Remains Flat as a Pancake in 2013Posted by Jonathan Miller- Wednesday, June 5, 2013, 12:27 PM 3 Comments
There has been remarkably little YTD improvement of available co-op/condo supply in Manhattan. This chart reflects co-op, condo and townhouse supply (existing + new dev). While we are now seeing a little more inventory enter the market, sales are outpacing prior year levels erasing any meaningful gains in supply. This chart illustrates how flat supply has remained in 2013. [Three Cents Worth NY #233] I’ll Take (Manhattan) “Combo” ApartmentPosted by Jonathan Miller- Wednesday, June 5, 2013, 12:15 PM No CommentsIt’s time to share my Three Cents Worth (3CW) on Curbed NY, at the intersection of neighborhood and real estate in the capital of the world…and I’m here to take measurements. Check out this week’s 3CW column on @CurbedNY: With inventory hovering around record lows, we’ve started to observe more sales of combined apartments. Combined apartments (i.e. connecting two or more adjacent apartments) tend to have inferior layouts than their equivalent-sized counterparts that were originally designed by the building architect. We are seeing more “combo” sales now and are also performing more hallway appraisals as of late (where apartment owners acquire the end of a hallway to enhance the layout of combined apartments)…
Today’s Post: Three Cents Worth: I’ll Take (Manhattan) “Combo” Apartment [Curbed]
[The Housing Helix Podcast] Barry Ritholtz Part 2Posted by Jonathan Miller- Sunday, September 23, 2012, 6:36 PM No Comments
Here’s part 2 of my conversation with Barry Ritholtz. If you missed it, listen to part 1 first. Don’t forget to check out Barry’s Big Picture Conference on October 10th. With the terrific speaker list it promises to be a great event. Here is the 2nd part of a 2 part conversation (listen to part 1 here): [The Housing Helix Podcast] Barry Ritholtz Part 1Posted by Jonathan Miller- Sunday, September 23, 2012, 3:57 PM 4 Comments
I got to sit down with my friend Barry Ritholtz and talk about the economy, QE3, housing, trickle down technology (iPhone 5) and cognitive dissonance. Barry is the CEO and Director of Equity Research at Fusion IQ, an online quantitative research firm. He is the author of Bailout Nation, a columnist at the Washington Post and a prolific generator of high quality economic insights (and other topics) on his heavily trafficked blog, The Big Picture. Barry is hosting the Big Picture Conference on October 10th. With the terrific speaker list it promises to be a great event. Here is the 1st part of a 2 part conversion (part 2 can be found here): [Interview PART II] Barry Ritholtz, CEO, Director of Equity Research, Fusion IQ, Author, Bailout Nation, The Big Picture BlogPosted by Jonathan Miller- Thursday, October 6, 2011, 8:21 AM 1 Comment
PART II OF II I’ve been on a 6 month hiatus from podcasting after 150+ interviews over the previous 2 years – had a bunch of other things going and I needed to take a little break. I’ve been itching to return and was talking to my friend Barry the other day and he wanted to do another one (his 3rd) and here it is. It’s “R”-rated (for Ritholtz) so wear your earphones if around sensitive-types as he covers the state of housing, a possible recession and his exciting conference next Tuesday. This podcast was too big so I cut it into 2 parts. The first part was presented yesterday. Enjoy! [Interview PART I] Barry Ritholtz, CEO, Director of Equity Research, Fusion IQ, Author, Bailout Nation, The Big Picture BlogPosted by Jonathan Miller- Wednesday, October 5, 2011, 12:15 PM No Comments
PART I OF II I’ve been on a 6 month hiatus from podcasting after 150+ interviews over the previous 2 years – had a bunch of other things going and I needed to take a little break. I’ve been itching to return and was talking to my friend Barry the other day and he wanted to do another one (his 3rd) and here it is. It’s “R”-rated (for Ritholtz) so wear your earphones if around sensitive-types as he covers the state of housing, a possible recession and his exciting conference next Tuesday. This podcast was too big so I cut it into 2 parts. The next will be up tomorrow. Enjoy! [Special Report] RBI Pending Home Sales Index – February 2011 [Washington, DC Metro]Posted by Jonathan Miller- Thursday, March 10, 2011, 1:51 PM No Comments
This podcast is an overview of the RBI Pending Home Sales Index – February 2011 covering the Washington, DC Metro area just released for RealEstate Business Intelligence (RBI), the data, research and analytics arm of MRIS.
[Strong, But Mixed Messages] 5-2013 Manhattan/Brooklyn Rental ReportPosted by Jonathan Miller- Wednesday, June 12, 2013, 3:05 PM No Comments
Douglas Elliman JUST published their Manhattan/Brooklyn rental report. This monthly report is part of an evolving market report series I’ve been writing for Douglas Elliman since 1994. We discontinued the quarterly rental report series but still present the information in our aggregate database. MANHATTAN
BROOKLYN
Here’s an excerpt from the report: MANHATTAN The year-overyear increase in median monthly rents have pressed higher since July 2011, averaging a 5% annual pace. The Manhattan median monthly rent was $3,200, up 3.5% from the same period last year. Average rent expanded at a similar pace, rising 3.2% to $3,951, just shy of the $4,000 threshold and the 7th highest monthly level in 60 months. The occurrence of rental concessions remained limited, with only 4.4% of all new rentals having some form applied. When concessions were used, they were the equivalent of 1.2 months rent…
[No Fiscal Cliff Hangover] 1Q 2013 Hamptons & North Fork ReportsPosted by Jonathan Miller- Monday, May 13, 2013, 10:02 AM 1 Comment
We recently released the market reports we prepare for Douglas Elliman covering the The Hamptons and North Fork. This is part of an evolving market report series I’ve been writing for Douglas Elliman since 1994. Key Points HAMPTONS 1Q 2013
NORTH FORK 1Q 2013
HAMPTONS…After an unprecedented year end surge in high end closings motivated by tax planning purposes, the first quarter Hamptons housing market saw an unusually low level of high end sales despite a year-over-year increase in total sales. As a result, the price indicators reflected declines, when in fact the housing market was not experiencing falling prices… You can build your own custom data tables on the market – now updated with 1Q 13. While we haven’t built separate chart galleries for each market yet, you can browse our chart library.
[Defined by Low Supply] 1Q 2013 Long Island Sales ReportPosted by Jonathan Miller- Monday, May 13, 2013, 9:34 AM No Comments
We published our report on the Long Island sales market for 1Q 2013. This is part of an evolving market report series I’ve been writing for Douglas Elliman since 1994. Key Points 1Q 2013
…The lack of supply and rise of contract activity continued to define the Long Island housing market. Listing inventory fell to the lowest first quarter level seen in a decade as pending sales continued to rise. Despite the tightening of the market, overall price indicators remained mixed. The number of listings in inventory at the end of the first quarter fell 24.8% to 15,303 as compared to the same period last year, a ten year first quarter low… You can build your own custom data tables on the market – now updated with 1Q 13 data. Check out the charts by browsing in our chart library.
1Q 2013 South Florida Housing Market Reports Gone WildPosted by Jonathan Miller- Monday, May 13, 2013, 9:20 AM No Comments
We recently completed the 1Q 2013 South Florida market report series for Douglas Elliman. These markets include Miami, Boca Raton, Fort Lauderdale and Palm Beach. [More Upside] 4-2013 Manhattan/Brooklyn Rental ReportPosted by Jonathan Miller- Sunday, May 12, 2013, 2:40 PM No Comments
Douglas Elliman JUST published their Manhattan/Brooklyn rental report. This monthly report is part of an evolving market report series I’ve been writing for Douglas Elliman since 1994. We discontinued the quarterly rental report series but still present the information in our aggregate database. MANHATTAN
BROOKLYN
Here’s an excerpt from the report: MANHATTAN…Median rental price jumped 6.5% to $3,195 from the same period last year, but was unchanged from the prior month. The average year-over-year increase in median rental price has been rising since the beginning of 2013 averaging 5.1% year to date. The average rate of rental price growth is consistent with the 2012 average rate of 5.3%. The year-over-year increase in median rental price across all size categories was remarkably consistent in April…
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 09/23/2012 [The Housing Helix Podcast] Barry Ritholtz Part 205/29/2013 BBC TV On Brooklyn’s Soaring Market[click to play] The word “bubble” is returning to the real estate conversation. Here’s a BBC clip on the rapid rebound in the Brooklyn housing market. |
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